UK's Johnson raises prospect of multi-billion pound payroll tax cut

LONDON (Reuters) - British Prime Minister Boris Johnson said on Wednesday he planned a multi-billion-pound tax cut if he wins an election on Dec. 12, by raising the amount of earnings exempt from social security payments.

The two main political parties are showcasing starkly different visions for the world’s fifth-largest economy ahead of the Dec. 12 election.

Johnson’s Conservatives are promising to deliver Brexit while Labour says it wants to be the most radical socialist government in British history.

Workers currently pay social security payments — known in Britain as National Insurance contributions (NICs) — on annual earnings over 8,632 pounds ($11,147), lower than the 12,000-pound threshold at which income tax becomes payable.

Earlier this year, Johnson said he wanted to bring the National Insurance threshold in line with income tax. On Wednesday he said that would be a key goal if his Conservative Party forms Britain’s next government.

Johnson told broadcasters he would raise the National Insurance to 9,500 pounds at the next budget and would then set out a timescale for further increases to 12,500 pounds.

“We want to operate in a prudent way, but we do want to help now with the cost of living,” Johnson said.

The Institute for Fiscal Studies, an independent think-tank, said the initial cut in the threshold would cost the government around 2 billion pounds in the next financial year.

“If the intention is to help the lowest paid, raising the NICs threshold is an extremely blunt instrument,” said Xiaowei Xu, research economist at the IFS, adding that raising in-work benefits to the lowest paid would be more effective.

The opposition Labour Party said the policy was “stuck in the 1980s”.

“Even after ten years of cruel cuts and despite creaking public services the Tories still think the answer to the challenges of our time is a tax cut of 1.64 pounds a week, with those on Universal Credit (benefits) getting about 60 pence,” said Labour finance spokesman John McDonnell.

Previous increases in the starting threshold for income tax were spread out over several years.

The Conservative Party has not yet formally released its full policy plans for the election.

Johnson called the election in order to break a deadlock over Brexit in parliament.

Finance minister Sajid Javid - who has announced big public spending increases - has said income tax cuts are unlikely.

Additional reporting by William James and Andy Bruce; editing by William Schomberg and Alexandra Hudson